New Eurobond to spark new wave of political contests

National treasury building in Nairobi

The latest acquisition of $2 billion (Sh200 billion) from the Eurobond is likely to trigger a new political crisis as Government faces criticism for over-borrowing.

The issue of the Eurobond is fodder for political bickering given the 2015 fiasco that followed a similar bond of Sh275 billion.

The Government faced heavy criticism, with claims that the money could not be accounted for. Even now, questions are being raised about the wisdom of going for more debt.

The Opposition, which put the Government under pressure three years ago over the same matter, is likely to reignite the debate. But Government remains optimistic.

“The fact that we got $14 billion in investor appetite reflected the continued support the country receives. We now have a dollar yield curve stretching out to 30 years, making Kenya one of only a handful of governments in Africa to achieve this,” Treasury said in a statement.

However, National Super Alliance (NASA) leader Raila Odinga’s adviser Salim Lone tore into the Jubilee administration, saying President Uhuru Kenyatta’s government was plunging the country into a financial hole.

“We are headed towards total bankruptcy. Our debt was not sustainable six months ago, when IMF withdrew the $1.5 billion facility and which the Central Bank of Kenya hid from the public. We are borrowing to pay back the earlier Eurobond, which disappeared into thin air,” said Mr Lone.

He said it was worrying that some investors were taking huge risk to lend Kenyan when international media has highlighted Kenya’s financial status and ratings agency Moody’s downgraded the country’s credit rating.

Growing faster

Moody's downgraded Kenya for both local and foreign loans, arguing that debt was growing faster than the Gross Domestic Product (GDP) and that new loans used to pay old debts were becoming expensive.

“On February 8, 2018, a rating committee was called to discuss the rating of the Kenya Government. The main points raised during the discussion were: The issuer's fiscal or financial strength, including its debt profile, has materially decreased. The issuer has become increasingly susceptible to event risks,” Moody's said.

But National Assembly Leader of Majority Aden Duale dismissed those criticising the bond, saying they did not understand how to run a government.

“Those who are making noise do not know how to run a government. Countries that have developed infrastructure like Malaysia, Singapore, UAE and others have borrowed heavily in the past. In the long run, the borrowing will bear fruit,” Mr Duale said, adding that as long as Kenya was paying back its debts, there was no need to worry.

NASA strategist David Ndii said the borrowing would have no positive impact on the economy because the money would largely go towards financing the repayment of other debts.

“I think Kenyans must now get used to this - where you borrow from Peter to pay Paul. This is like arranging refinancing from your bank as the economy is no longer generating to pay up the debts,” said Dr Ndii.

He said Kenya had already delayed repayment of Sh700 million from last October due to the electioneering period, and that amount would be paid in March while another $1 billion (Sh100 billion) is due by the end of the year.

Transparency International Kenya Executive Director Samuel Kimeu said the borrowing was a source of concern due to the huge repayment schedules.

“When it was 30 per cent, we were told the red line was 40 per cent. But now we are paying over 50 per cent of our revenue; that must be  worrying,” said Mr Kimeu.